Your Money, Your Goals Spotlight Series

Your Money, Your Goals Spotlight Series

Understanding credit reports and scores: An in-depth look

DISCLAIMER

This presentation is being made by a Consumer Financial Protection Bureau representative on behalf of the Bureau. It does not constitute legal interpretation, guidance or advice of the

Consumer Financial Protection Bureau. Any opinions or views stated by the presenter are the

presenter’s own and may not represent the Bureau’s views.

This document was used in support of a live discussion. As such, it does not necessarily

express the entirety of that discussion nor the relative emphasis of topics therein.

This document includes links or references to third-party resources. The inclusion of links or

references to third-party sites does not necessarily reflect the Bureau’s endorsement of the

third-party, the views expressed on the outside site, or products or services offered on the outside site. The Bureau has not vetted these third-parties, their content, or any products or

services they may offer. There may be other possible entities or resources that are not listed

that may also serve your needs.

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Purpose

§  Provide an in-depth look at credit and other consumer reporting and scoring

§  Give you a greater base of understanding on how to use the information and tools on this topic from Your Money, Your Goals—the CFPB’s financial empowerment toolkit

§  Provide you with an opportunity to consider how to apply this topic to your own situation or within your work with clients

Opening question

§  What about this topic is important for the clients you serve?

About the CFPB

§  Empower §  Enforce

§  The CFPB works to make consumer financial markets work for consumers, responsible providers, and the economy as a whole.

CFPB’s work

Empower Enforce Educate

Office of Financial Empowerment §  Consumer engagement and education §  Serves populations who lack full, affordable access to

financial services ¨  Low- to moderate-incomes ¨  Low wealth ¨  Otherwise financially excluded or vulnerable

Common challenges faced by low-income consumers

§  Loss of jobs, homes, and wealth §  Lack of access to safe and affordable financial products

and services §  Accumulation of debt §  Blemished credit reports and low credit scores §  Lack of financial capability

Your Money, Your Goals

Your Money, Your Goals

§  Social service organizations

§  Community volunteers §  Legal aid organizations §  Workers

Why credit reports and scores matter

§  Banks and credit unions §  Credit card companies §  Service providers (cell phone companies and utility

companies) §  Insurance companies (in some states) §  Landlords §  Potential or current employers

Consumer reporting Your Money, Your Goals Spotlight Series

Consumer reporting agencies

Consumer Reporting Agencies

Nationwide Consumer Reporting

Companies

Equifax Experian

TransUnion

Specialty Consumer Reporting

Companies

Specialty consumer reporting companies

§  Opening or using bank accounts §  Rental payments §  Homeowners and renters insurance claims §  Payday lending and other alternative financial products §  Utility payments §  Phone bill payments §  Employment §  Medical records or payments

Specialty reports—Check and bank screening

§  Certegy www.askcertegy.com §  ChexSystems www.consumerdebit.com §  Early Warning Services www.earlywarning.com §  TeleCheck www.FirstData.com/telecheck

¨  Checking account applications, openings, check-writing history, account closures, and reasons for closures

¨  Money owed to financial institutions ¨  Fraud ¨  Check verifications

Specialty reports—Utilities

National Consumer Telecom and Utilities Exchange www.NCTUE.com

¨  New connect requests ¨  Account and payment histories ¨  Defaults ¨  Fraudulent accounts associated with

telecommunications, pay TV, and electric, gas, and water services

Credit reporting Your Money, Your Goals Spotlight Series

What’s in a credit report?

1.  Identifying information 2.  Public record information   3.  Collection agency account information   4.  Credit account information   5.  Inquiries made to your account

What is in a credit report?

1.   Identifying information

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What is in a credit report?

1.  Identifying information

2.   Public record information

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What is in a credit report?

1.  Identifying information

2.  Public record information  

3.   Collection agency account information  

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What is in a credit report?

1.  Identifying information

2.  Public record information  

3.  Collection agency account information  

4.   Credit account information

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What is in a credit report?

1.  Identifying information

2.  Public record information  

3.  Collection agency account information  

4.  Credit account information  

5.   Inquiries made to your account

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Key terms

§  What is a business or individual that reports information to a credit reporting agency called?

a.  Information furnisher

b.  End user

c.  Authorized user

Key terms

§  What is the business or individual that received a credit report called?

a.  Information furnisher

b.  End user

c.  Authorized user

Key terms

§  What is a person permitted to use a credit card account, but not responsible for that account called?

a.  Information furnisher

b.  End user

c.  Authorized user

Key terms

§  What is an account that has not been paid on time and is late?

a.  Delinquent

b.  Default

c.  Charge off

Key terms

§  What is an account that has been late for several consecutive 30-day billing cycles?

a.  Delinquent

b.  Default

c.  Charge 0ff

Key terms

§  What is an account a business decides is uncollectible?

a.  Delinquent

b.  Default

c.  Charge off

The Fair Credit Reporting Act

§  Why is knowing about the FCRA important? ¨  Provides consumers with rights regarding access to

their consumer and credit reports ¨  Promotes the accuracy, fairness, and privacy of

information in the files of consumer reporting agencies

The FCRA – What are my rights?

§  Limits the reporting of outdated, negative information. §  Limits who can have access to consumers’ credit files §  Ensures consumers are informed if their files have been

used against them §  Provides consumers with the right to know what is in

their file §  Gives consumers the right to dispute incomplete or

inaccurate information §  Requires consumer consent for reports to be provided to

employers

Credit scoring Your Money, Your Goals Spotlight Series

What is a credit score?

§  A credit score is generated by applying a mathematical formula to information from your credit report.

§  The score predicts how likely you are to pay back a loan on time.

§  Higher score generally make it easier to qualify for a loan and will likely result in a lower interest rate.

§  Most scores range from 300-850. §  Lenders use these scores to make lending decisions.

Factors that influence credit scores: FICO score example

§  These percentages reflect how much each category determines a FICO score.

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10%

10%

15%

30%

35%

Types of credit used

New credit

Length of credit history Amounts owed

Payment history

Credit utilization rate example

§  $5,000 credit limit §  $3,500 charged §  $3,500 (amount charged) ÷ $5,000 (credit limit) = 0.7

or 70%

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Factors that influence credit scores: FICO score example

§  These percentages reflect how much each category determines a FICO score.

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10%

10%

15%

30%

35%

Types of credit used

New credit

Length of credit history Amounts owed

Payment history

Factors that influence credit scores: VantageScore example

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Managing credit history Your Money, Your Goals Spotlight Series

Managing credit history

§  Getting your credit reports §  Reviewing your credit reports §  Improving your credit reports and scores §  Proving your disputes

Right to free credit reports

You can get an additional free report if you: §  Are unemployed and plan to look for employment in the

next 60 days. §  Are receiving public assistance. §  Have been the victim of fraud including identity theft. §  Have had adverse action taken (you have been denied

credit, employment, insurance, etc.) because of information in your credit report. In this case, you have 60 days to request your report.

Getting your credit reports

§  Equifax http://www.equifax.com/home/en_us §  Experian http://www.experian.com §  TransUnion http://www.transunion.com

§  Annual Credit Report http://annualcreditreport.com

Getting free, annual credit reports

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Getting free, annual credit reports

Getting free, annual credit reports

§  Online: Get a free copy of your credit report at AnnualCreditReport.com

§  By mail: Download and complete the Annual Credit Report Request Form and mail it to:  Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281

45 https://www.annualcreditreport.com/manualRequestForm.action

Getting free, annual credit reports

Getting your credit reports

§  Online: Get a free copy of your credit report at AnnualCreditReport.com

§  By mail: Download and complete the Annual Credit Report Request Form and mail it to:  Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281

§  By phone: Call (877) 322-8228

Opting out

§  To opt out for five years: Call toll-free 1-888-5-OPT-OUT (1-888-567-8688) or visit www.optoutprescreen.com

§  To opt out permanently: You may begin the

permanent Opt-Out process online at www.optoutprescreen.com

Reviewing your credit reports

•  Negative information that should not be reported

•  Incomplete information

•  Inaccurate information

Negative information §  Negative information can be reported to those who

request your credit report for only a specified period of time—7 years for most items.

§  Bankruptcy can stay on your credit report for 10 years, and certain other court records can be reported on your credit report for longer than seven years.

§  Civil suits, judgments, and arrest records can be reported on your credit report for seven years or for the duration allowed by the statute of limitations, whichever is longer.

§  There is no time limit for criminal “convictions.”

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Negative information §  There is no time limit in terms of reporting

information (positive or negative) in connection with applications for: ¨  Credit of $150,000 or more

¨  Life insurance with a face value of $150,000 or more

¨  Jobs with an annual salaries of $75,000 or more

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Disputing

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Disputing Send letter and copies of evidence Certified Mail, Return Receipt Requested

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Improving your credit reports and scores

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Improving your credit reports and scores

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Improving your credit reports and scores

Submitting a complaint

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Proving your disputes

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You can provide records to show you: §  Paid a bill on time that a creditor has reported late §  Paid a debt that a creditor has reported unpaid §  Sent a dispute letter to a debt collector who has claimed

he did not receive it §  Paid your rent in cash (receipt)

You can provide records to show you have: §  Insurance coverage §  A warranty for a cell phone

Questions?

Your Money, Your Goals Spotlight Series

Final discussion questions

§  How will you use this information in your work with clients?

§  What additional information do you want related to credit reports and scores?

Get updates on Your Money, Your Goals

Sign up for email updates at the bottom of the Your Money, Your Goals page of consumerfinance.gov

Contact the Office of Financial Empowerment

§  Email YourMoneyYourGoals@cfpb.gov

Thank you for your participation!

Your Money, Your Goals Spotlight Series